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Dollar drop: Technical correction or the start of DXY’s descent?

By Adrian Holliday

11:46, 30 September 2022

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In this article:
1.05416 USD
0.00147 +0.140%
US Dollar Index
103.6871 USD
-0.681 -0.650%

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A hotter-than-expected PCE report could fire USD yet higher
Trader at the NYSE, 2019 – is DXY having a serious correction? - Photo: Getty

Is USD dying a little, finally? DXY is down 1.1% over the last week. Dollar bears dumped the buck yesterday despite a small end-of-day pull higher. 

Was this profit taking – or is patience wearing thin from the clutches of an overbearing safe haven?

What is your sentiment on DXY?

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The dollar has crept higher despite a recent cracking – what comes next?

Bear aware?

Some anti-USD attitude is understood but probably premature. Geopolitical risk is rising, again, on President Putin's slicing up of four provinces of Ukraine. The biggest land grab since the Second World War; it's a big moment. The (independent) Moscow Times puts it in four words: ‘Putin Always Chooses Escalation’. 

Normally this would suggest extra defensive positioning says ING’s Chris Turner – owning more dollars. “Our slight concern is that any disorderly FX de-leveraging in thinning markets could see investors temporarily reduce existing positions - including long dollars.”

It’s further complicated by concern whether the euro (EUR/USD) “has fully priced in the consequences of the conflict and the related energy crisis” Rabobank’s fx strategist Jane Foley pointed out this week. 

Still sticky

The August release of one of the Fed's go-to measures of inflation – personal consumption expenditures – saw the core rate, excluding food and energy prices, rise from 4.7% to 4.9%, despite a drop in the headline rate from 6.4% to 6.2% .

ING’s Chris Turner at ING said: “Remember that according to the Fed's quarterly economic projections, the central bank expects this inflation measure to drop to 4.5% by the end of this year. 

“Even that drop to 4.5% will require Fed Funds being taken into the 4.25-4.50% range.” Today's upside surprise could see the Fed hike harder. Capital fx strategist Daniela Hathorn errs to USD bulls, overall, still. 


134.34 Price
-0.750% 1D Chg, %
Long position overnight fee 0.0047%
Short position overnight fee -0.0130%
Overnight fee time 22:00 (UTC)
Spread 0.014


1.05 Price
+0.140% 1D Chg, %
Long position overnight fee -0.0084%
Short position overnight fee 0.0024%
Overnight fee time 22:00 (UTC)
Spread 0.00010


0.68 Price
-0.260% 1D Chg, %
Long position overnight fee -0.0052%
Short position overnight fee 0.0005%
Overnight fee time 22:00 (UTC)
Spread 0.00014


1.23 Price
+0.290% 1D Chg, %
Long position overnight fee -0.0042%
Short position overnight fee 0.0003%
Overnight fee time 22:00 (UTC)
Spread 0.00060

Inflation priorities still no 1 

“We’ve seen warning signs from US GDP data over the last few quarters, but as Janet Yellen [US Treasury Secretary] said a few months ago, a true recession is a broad-based weakening of the economy. I don’t think we're there yet. 

“The [US] labour market remains robust,” she goes on, “at least until we get the September data next Friday, and personal spending remains strong despite having fallen from its peak earlier this year.”

Some new interest in other market currency offerings, including sterling, is understandable. But markets have not lost confidence in the Fed’s ability to handle higher rates and falling consumer confidence – yet.

Some analysts still think DXY could hit 1.20 as conditions tighten further.

Evaporation contained?

Mid morning sterling slumped to 1.1097 as Office of Budget Responsibility (OBR) committee members, including Richard Hughes and Andy King, left No 11 Downing Street just 48 minutes after entering, PA Media claimed. 

Kwasi Kwarteng’s toxic decision to sideline the independent OBR in last week’s borrow-to-cut-taxes growth plan, carelessly spilling acetone at markets, is still being worked through.

However the Office for Budget Responsibility has confirmed an initial forecast on 7 October. Nearer lunchtime DXY was at 112.47, up 0.43% while GBP/USD was 0.54% lower at 1.1052 and EUR/USD was down 0.52% at 0.9759.

DXY tearstrip: Fx Strategist And Finance Consultant At Keirstone, Francis Fabrizi 

  • DXY has been declining from the 114.766 resistance level this week Fabrizi points out. “I believe we will see further bearish momentum today possibly leading into the beginning of next week. This is inevitably due to the result of buyers taking profits at the end of Q3. 
  • "Additionally, we have seen the central banks make several attempts to reduce dollar strength, therefore this week’s weakness could be a result of their efforts."
  • Monday’s ISM Manufacturing PMI will give a better insight into whether USD is preparing for a long term bearish reversal or a temporary pullback before a bigger push to the upside he says.
  • But USD is still looking bullish overall. “I anticipate dollar buyers will regain control once price reaches 111.213 support level. If we see price reverse from this level, it is likely we will see another attempt to break through the 114.766 barrier."
  • "However, if price falls below 110.377, I believe we will see price reach 109.184 support level which will also be a third tap of the ascending trend line seen on the daily timeframe.”

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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